Struggling Perry Ellis To Go Private, But Is Price Too Low?

Clothing maker Perry Ellis (NASDAQ: PERY) will go private, a deal led by founder George Feldenkreis. He will control the new company. The deal comes several months after he first announced his intentions.

The deal is valued at $437 million, or $27.50 a share. This is 21.6% higher than the price where the stock traded before the announcement of the initial effort to go private made on February 5. Some investors may object, since the stock has a 52-week high of $28.54, perhaps based on an the belief an outside company might try to buy Perry Ellis, or a higher offer by Feldenkreis to entice his board to improve his first offer. It would not be surprising if Perry Ellis faces a shareholder suit due to the difference

Despite the relatively low price, a committee of the board agreed to the deal. J. David Scheiner, Non-Executive Chairman of the Perry Ellis Board of Directors and Chair of the Special Committee:

“The Special Committee and its advisors conducted a disciplined and independent process to ensure the best outcome to maximize value for shareholders. We believe, upon the closing, that this transaction delivers an immediate cash premium and is in the best interest of all Perry Ellis shareholders.”

On the other hand, investors might count themselves as lucky. The company’s numbers for the most recent quarter were lackluster:

Total revenues rose 5.4% to $255 million from $242 million in the first quarter of fiscal 2018. Revenues were fueled by growth in Golf and Nike Swim and a high-single digit increase in the Direct-to-Consumer channel sales.

GAAP pre-tax income was $13.1 million compared to $14.5 million in the first quarter of fiscal 2018, and adjusted pre-tax income rose 7.6% to $15.6 million from $14.5 million in the first quarter of fiscal 2018.

The results reflect the same kind of slow growth, or no growth, other retailers are suffering. Over the last five years, its shares have under-performed the market, up 32% against a gain of 75% in the S&P.

Even if shareholders believe they should have done better, they no longer face the risk of the value of a company which operates in an industry in trouble.